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November 2001 Manufacturing Report On Business®

FOR RELEASE: December 3, 2001

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
MANUFACTURING CONTINUES TO SLOW IN NOVEMBER SAY PURCHASING AND SUPPLY EXECUTIVES IN LATEST MANUFACTURING NAPM REPORT ON BUSINESS®

DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report's information reflects the entire United States, while the regional reports cover only their local vicinity. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of November 2001.

PMI at 44.5%
Production, New Orders, Employment Decline Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector declined for the 16th consecutive month in November. The overall economy returned to growth after registering a significant decline in October say the nation's purchasing and supply executives in the latest Manufacturing NAPM Report On Business®.

The report was issued today by Norbert J. Ore, C.P.M., chair of the National Association of Purchasing Management's Manufacturing Business Survey Committee and group director, strategic sourcing and procurement, Georgia-Pacific Corporation. "After absorbing last month's aftershock of the terrorist attacks, the manufacturing sector showed surprising resilience in November as New Orders gained 10.5 percentage points, which is among the largest one-month increase in the history of the index. The trend is definitely in the right direction, but it is too soon to claim an eminent recovery. Based on this report, the sector regained a significant portion of the output lost in October. The fact that five of 20 industries recorded strength in new orders is encouraging."

NAPM's Backlog of Orders Index indicates that order backlogs declined for the 19th consecutive month. NAPM's Supplier Deliveries Index continues to reflect faster deliveries. Manufacturing employment continued to decline in November as the index fell below the breakeven point (an index of 50 percent) for the 14th consecutive month. NAPM's Prices Index remained below 50 percent as manufacturers experienced lower prices for the ninth consecutive month. New Export Orders contracted in November for the third consecutive month. November's Imports Index moved upward but still failed to show growth for the month. Comments from purchasing and supply executives this month reflect continuing concern about the overall economy, but appear more optimistic than last month.

NAPM's PMI is 44.5 percent in November, an increase of 4.7 percentage points from the 39.8 percent reported in October. NAPM's Production Index rose 6.2 percentage points from 40.9 percent in October to 47.1 percent in November. NAPM's New Orders Index rose a significant 10.5 percentage points from 38.3 percent in October to 48.8 percent in November. NAPM's Backlog of Orders Index rose from 36 percent in October to 38.5 percent in November. NAPM's Supplier Deliveries Index declined from 49.2 percent to 47.3 percent in November. The NAPM Employment Index is at 35.7 percent for November, an increase of 0.6 percentage point when compared to the 35.1 percent reported in October. NAPM's Prices Index in November is 31.6 percent, a decrease of 0.9 percentage point from October's 32.5 percent.

NAPM's Inventories Index is at 37.9 percent indicating a slower rate of inventory liquidation when compared to October's 36.8 percent. Responding to a special monthly question concerning customers' inventories of products purchased from their organizations, 12 percent of the purchasing and supply executives felt they were too high, while 23 percent felt they were too low and 65 percent thought they were about right. NAPM's New Export Orders Index registered 49.3 percent, up from October's 45 percent. Imports of materials by manufacturers failed to grow as NAPM's Imports Index is 49.8 percent for the month, up from October's 46.3 percent.

"The overall picture is one of continued decline in manufacturing activity during the month of November," added Ore. "The manufacturing decline is now in its 16th month and even with this month's signs of encouragement, it takes time to build a recovery across the sector. The sharp decline in new orders and production during October signaled the possibility of an involuntary inventory build, but is not confirmed by the data."

Of the 20 industries in the manufacturing sector, five industries reported growth: Tobacco; Food; Apparel; Instruments & Photographic Equipment; and Glass, Stone & Aggregate.

"Coal was the only commodity reported on the Short Supply List. Natural Gas was reported up in price (also reported down in price). The commodities reported down in price are: Aluminum, Caustic Soda, Chemicals, Copper, Corrugated Containers, Energy, Fuel, Gasoline, Natural Gas (also reported up in price), Oil, Paper, High Density Polyethylene, Resins, Stainless Steel, and Steel," Ore stated.

NOVEMBER 2001 NAPM BUSINESS SURVEY AT A GLANCE
Series November
Index
Direction
Nov vs Oct
Rate of Change
Nov vs Oct
PMI 44.5 Contracting Slower
Production 47.1 Contracting Slower
New Orders 48.8 Contracting Slower
Backlog of Orders 38.5 Contracting Slower
Supplier Deliveries 47.3 Faster Faster
Inventories 37.9 Contracting Slower
Employment 35.7 Contracting Slower
Prices 31.6 Contracting Faster
New Export Orders 49.3 Contracting Slower
Imports 49.8 Contracting Slower

THE ECONOMY AT A GLANCE
Overall Economy Growing From Contracting
Manufacturing Contracting Slower

PMI

The PMI indicates that the manufacturing economy failed to grow during the month of November with an index of 44.5 percent. However, the overall economy reversed its October decline and grew slightly. While this is the 16th consecutive month of decline in manufacturing, the rate of contraction slowed significantly when compared to October's 39.8 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 42.7 percent, over a period of time, generally indicates an expansion of the overall economy. The November PMI indicates that the overall economy is growing and the manufacturing sector is contracting. Ore added, "The past relationship between the PMI and the overall economy indicates that the average PMI for the months of January through November (43.5 percent) corresponds to 0.3 percent growth in real gross domestic product (GDP). However, if the PMI for November (44.5 percent) turned out to be the annual average for 2001, this would correspond to a 0.7 percent increase in GDP."

Month Nov'01 Oct'01 Sep'01 Aug'01 Jul'01
PMI% 44.5 39.8 47.0 47.9 43.6
Month Jun'01 May'01 Apr'01 Mar'01 Feb'01
PMI% 44.7 42.1 43.2 43.1 41.9
Month Jan'01 Dec'00 Nov'00 Oct'00 Sep'00
PMI% 41.2 44.3 47.9 48.3 49.6

Production

NAPM's Production Index is 47.1 percent in November up from 40.9 percent in October. An index above 49.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Of the 20 industries reporting, those registering growth in November were: Glass, Stone & Aggregate; Tobacco; Food; Instruments & Photographic Equipment; and Paper.

Production %Better %Same %Worse Net Index
November 2001 20 52 28 -8 47.1
October 2001 17 48 35 -18 40.9
September 2001 25 56 19 +6 51.3
August 2001 22 55 23 -1 52.2

New Orders

NAPM's New Orders Index failed to grow in November for the second consecutive month. The index is at 48.8 percent representing an increase of 10.5 percentage points when compared to October's 38.3 percent. A New Orders Index above 50.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 1987 dollars). Industries reporting increases for the month of November are: Apparel; Instruments & Photographic Equipment; Food; Furniture; and Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments).

New
Orders
%Better %Same %Worse Net Index
November 2001 24 44 32 -8 48.8
October 2001 18 38 44 -26 38.3
September 2001 28 48 24 +4 50.3
August 2001 27 51 22 +5 53.1

Backlog of Orders

The Backlog of Orders Index failed to grow for the 19th consecutive month in November. NAPM's Backlog of Orders Index (not seasonally adjusted) registered 38.5 percent indicating a slower rate of decline in manufacturers' backlogs than reported in October. Of the 89 percent of respondents who measure their backlog of orders, 14 percent reported greater backlogs, 37 percent reported smaller backlogs, and 49 percent reported no change from October. Food was the only industry reporting an increase in backlog during the month.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
November 2001 89 14 49 37 -23 38.5
October 2001 87 12 48 40 -28 36.0
September 2001 87 15 56 29 -14 43.0
August 2001 90 16 57 27 -11 44.5

Supplier Deliveries

NAPM's Supplier Deliveries Index indicates delivery performance is faster when compared to October (a reading below 50 percent indicates faster deliveries). At 47.3 percent, the index is 1.9 percentage points higher than October's 49.2 percent. The industries reporting slower supplier deliveries in November were: Rubber & Plastic Products and Fabricated Metals.

Supplier
Deliveries
%Slower %Same %Faster Net Index
November 2001 4 88 8 -4 47.3
October 2001 8 83 9 -1 49.2
September 2001 4 87 9 -5 46.5
August 2001 6 83 11 -5 46.5

NOTE: A list of commodities in short supply is available at the end of this report.

Inventories

The rate of liquidation of manufacturers' inventories slowed in November as the Inventories Index registered 37.9 percent, up from the 36.8 percent reported in October. The Inventories Index has been under 50 percent for 22 consecutive months. An Inventories Index greater than 41.3 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (constant 1987 dollars). Furniture is the only industry reporting higher inventory.

Inventories %Higher %Same %Lower Net Index
November 2001 9 55 36 -27 37.9
October 2001 13 50 37 -24 36.8
September 2001 10 58 32 -22 38.9
August 2001 12 54 34 -22 37.7

Employment

NAPM's Manufacturing Employment Index fell below 50 percent in November for the 14th consecutive month. The index registered 35.7 percent in November compared to 35.1 percent in October, an increase of 0.6 percentage point.

An Employment Index above 47.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. There were no reports of higher employment in any of the sectors during the month.

Employment %Higher %Same %Lower Net Index
November 2001 5 61 34 -29 35.7
October 2001 8 53 39 -31 35.1
September 2001 8 65 27 -19 41.2
August 2001 8 65 27 -19 40.8

Prices

NAPM's Prices Index indicates manufacturers continued to pay lower prices in November. With the index at 31.6 percent, this marks the ninth consecutive month the index has been below 50 percent. The index is 0.9 percentage point lower than October's 32.5 percent. In November, 3 percent of purchasing and supply executives reported paying higher prices and 42 percent reported paying lower prices, while 55 percent reported that prices were unchanged from the preceding month.

A Prices Index below 46.4 percent, over time, is generally consistent with a decrease in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. There were no reports of higher prices in any of the sectors during the month.

Prices %Higher %Same %Lower Net Index
November 2001 3 55 42 -39 31.6
October 2001 6 56 38 -32 32.5
September 2001 6 64 30 -24 36.3
August 2001 6 60 34 -28 33.9

NOTE: A list of commodities up in price and down in price is available at the end of this report.

New Export Orders

NAPM's New Export Orders Index for November registered 49.3 percent, an increase of 4.3 percentage points when compared to October's index of 45 percent. The industries reporting growth in new export orders in November were: Apparel; Paper; Furniture; Food; and Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments).

New Export
Orders
%Exporting %Better %Same %Worse Net Index
November 2001 74 13 73 14 -1 49.3
October 2001 76 7 71 22 -15 45.0
September 2001 75 9 78 13 -4 45.9
August 2001 76 14 77 9 +5 51.9

Imports

Imports of materials by manufacturers failed to grow in November as the Imports Index registered 49.8 percent, a 3.5 percentage points increase when compared to October's report of 46.3 percent. The five industries reporting growth in import activity for November were: Furniture; Textiles; Printing & Publishing; Food; and Fabricated Metals.

Imports %Importing %Higher %Same %Lower Net Index
November 2001 72 11 75 14 -3 49.8
October 2001 73 10 73 17 -7 46.3
September 2001 75 12 78 10 +2 50.3
August 2001 76 10 81 9 +1 49.7

Buying Policy

Average commitment leadtime for Capital Expenditures rose 4 days to 92 days. Average leadtime for Production Materials rose 3 days to 47 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies rose 1 day to 21 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
November 2001 29 7 16 20 22 6 92
October 2001 25 11 18 21 20 5 88
September 2001 26 8 14 21 25 6 98
August 2001 28 8 14 19 24 7 98
Production Materials              
November 2001 20 48 19 8 3 2 47
October 2001 24 40 24 8 3 1 44
September 2001 24 45 21 7 3 0 39
August 2001 23 41 22 9 3 2 47
MRO Supplies              
November 2001 55 32 11 2 0 0 21
October 2001 54 35 10 1 0 0 20
September 2001 55 34 8 2 1 0 21
August 2001 53 34 10 3 0 0 22

In Short Supply

Coal.

Up in Price

Natural Gas (also shown down in price).

Down in Price

Aluminum — 9th month; Caustic Soda — 7th month; Chemicals — 2nd month; Copper — 6th month; Corrugated Containers — 10th month; Energy — 3rd month; Fuel; Gasoline — 2nd month; Natural Gas — 10th month (also shown up in price); Oil; Paper; High Density Polyethylene — 6th month; Resins — 2nd month; Stainless Steel — 2nd month; and Steel — 7th month.

Data and Method of Presentation

The Manufacturing NAPM Report On Business® is based on data compiled from monthly replies to questions asked of purchasing and supply executives in over 400 industrial companies. Membership of the Business Survey Committee is diversified by Standard Industrial Classification (SIC) category, based on each industry's contribution to Gross Domestic Product (GDP). Twenty industries from various U.S. geographical areas are represented on the committee.

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Employment, and Prices), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction (higher, better, and slower for Supplier Deliveries) and the negative economic direction (lower, worse, and faster for Supplier Deliveries), and the diffusion index. Responses are raw data and are never changed. The diffusion index includes the percent of positive responses plus one-half of those responding the same (considered positive).

The resulting single index number is then seasonally adjusted to allow for the effects of repetitive intrayear variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to nonmoveable holidays. All seasonal adjustment factors are supplied by the U.S. Department of Commerce and are subject annually to relatively minor changes when conditions warrant them. The PMI is a composite index based on the seasonally adjusted diffusion indices for five of the indicators (New Orders, Production, Supplier Deliveries, Inventories, and Employment) with varying weights.

Diffusion indices have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. A PMI reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent that it is generally declining. A PMI over 42.7 percent, over a period of time, indicates that the overall economy, or Gross Domestic Product (GDP), is generally expanding, below 42.7 percent, it is generally declining. The distance from 50 percent or 42.7 percent is indicative of the strength of the expansion or decline. With some of the indicators within this report, NAPM has indicated the departure point between expansion and decline of comparable government series, as determined by regression analysis.

Responses to Buying Policy reflect the percent reporting the current month's leadtime, the approximate weighted number of days ahead for which commitments are made for Production Materials, Capital Expenditures, and Maintenance, Repair, and Operating (MRO) Supplies, expressed as hand-to-mouth (five days), 30 days, 60 days, 90 days, six months (180 days), a year or more (360 days), and the weighted average number of days. These responses are raw data, never revised, and not seasonally adjusted since there is no significant seasonal pattern.

The Manufacturing NAPM Report On Business® is published monthly by the National Association of Purchasing Management. In May 2001 the membership of the National Association of Purchasing Management voted to change the association's name to the Institute for Supply Management™. The association, established in 1915, is the world's leading educator of supply management professionals and is a valuable resource for decision makers in major markets, organizations, and government. This change reflects recognition of the increasing strategic and global significance of supply management, and becomes effective January 1, 2002. For further information, see NAPM's Web site at www.ism.ws. The report has been issued by the association since 1931, except for a four year interruption during World War II.

The full text version of the Manufacturing NAPM Report On Business® is posted on NAPM's Web site at www.ism.ws on the first business day of every month after 10:10 a.m. (ET).

The next Manufacturing NAPM Report On Business® featuring the December 2001 data will be released at 10:00 a.m. (ET) on January 2, 2002.



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